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ASSET HIGHLIGHT: LITECOIN

In addition to its potential as a platform, litecoin has also emerged as an investable crypto-asset. To properly assess the investment potential of this emerging asset, we need context. In the following document we provide said context via: a quick overview of the platform and its component parts; a discussion about current and future growth drivers; an examination of price, volume and transaction trends; a look at litecoin as a portfolio tool; and ﬁnally a brief overview of some of the largest risks to the platform. CS Research ASSET HIGHLIGHT: LITECOIN Lead Analyst (AC): Christopher Bendiksen TABLE OF CONTENTS

Litecoin Background 3 Asset Performance & Correlations 12 Deep Drive: Scrypt Mining 3 Investment case of US$ 10,000 12 Volatility 12 Risk-Adjusted Returns 13 Tech & Architecture 4 Returns Compared to Common Assets 14 Founders, Governance & Development 4 Correlations of Returns per Asset 14 Technology 5 SegWit & Transaction Malleability 5 Deep Dive: Segregated Witness 6 14 Deep Dive: Transaction Malleability 6 Risks The Lightning Network 7 Key Personnel Risk 14 Deep Dive: Hashed Time Lock Contracts 8 Block Reward Tapering 14 Atomic Swaps 8 Scaling 15 Harmful Legal or Regulatory Action 15 Running a Full Node is Costly and Technically 16 Challenging for Most Users Competition & Technological Obsolescence 16 Utility & Growth Opportunities 9 Hostile State-Level Adversaries 16 Sound Money 9 Additional Risks 16 Most Valuable Use Cases 9 Medium of Exchange 9 Store of Value 9

Citations 17 Speculative Value & Relationships to 10 Watch Glossary 18 Dominance 10 Transaction Volume 10 Important Disclaimer 19 Exchange Volume 10 Search Trends 11

PLEASE REVIEW THE DISCLAIMER ON PAGE 24

None of the commentary or analysis contained herein is meant to constitute ﬁnancial advice. This document is meant to be used as a foundational guide to Litecoin and its potential. All analysis is meant to provide emerging trends and observations that may offer value in developing your own investment thesis, though past performance is not indicative of future performance. Please consider all risks carefully prior to making any investment, especially in an evolving asset like litecoin.

LITECOIN BACKGROUND

Litecoin is a true crypto-old-timer with one of the longest running track records of any crypto asset in SCRYPT MINING CONTINUED… the market. While most early altcoins suffered from bugs, design failures and lack of community support, Because of these properties, scrypt mining was Litecoin has maintained a strong, successful record of meant to re-enable CPU mining and to make the continuous operation without significant disruption in development of Application Specific Integrated protocol function. Circuits (ASICs) for mining uneconomical. And for a while it succeeded. The origins of Litecoin offer a fascinating peek into the However, as the cumulative mining revenue of early cryptocurrency mining community and the issues scrypt-mined coins grew, the potential reward they were facing in the first few years post-Bitcoin. In for successful scrypt-ASICs overcame the cost of order to properly understand how the contemporary development, and by spring 2014 the first environment in 2011 facilitated the birth and growth of scrypt-ASICs hit the open market. Litecoin, we need to take a closer look at the state of Bitcoin mining around that time and the community Currently, scrypt ASICs have become the members contributing to the development of the industry standard for scrypt mining and industry. specialised mining rigs are now offered by several hardware providers worldwide. At the time, Bitcoin mining was fast becoming unprofitable on standard retail computing hardware. Satoshi Nakamoto had originally intended Bitcoin to the all-purpose processor at the core of retail be mined solely by Central Processing Units (CPUs), computers. Unforeseen by Nakamoto however, the already by 2010, miners were starting to experiment DEEP DIVE: SCRYPT MINING with modified mining software in order to facilitate bitcoin mining using Graphics Processing Units Scrypt (pronounced ess crypt) is a cryptographic (GPUs), a class of chips better suited for parallel password-based key derivation function processing. Successful implementations carried the originally envisioned for online backup. It is potential of increasing mining efficiency by orders of designed specifically to increase the cost of magnitude, representing a huge competitive large-scale custom hardware attacks by advantage and setting the stage for the creation of requiring large amounts of memory in its highly specialised mining hardware. computation (1). While the first known GPU miner is Laszlo Hanyecz It takes advantage of the space-time-trade-off (3), of bitcoin pizza fame, the strongest impact on property of computer science whereby a program the mining community was arguably made by or algorithm is subject to an essential trade-off anonymous mining legend ArtForz. He created highly between memory usage and execution time (2). modified versions of Bitcoin mining software The idea is to make each computation relatively optimised for GPU mining and built some of the first expensive, e.g. on the order of hundreds of known multi-GPU rigs. While it is impossible to know milliseconds, instead of nanoseconds. The effect for sure, BitcoinTalk owner and moderator Theymos is that for legitimate human users, who only estimated that ArtForz’ early GPU mining rigs were need to perform the calculation once for producing between 20% and 30% of the entire authentication, the operation seems near- BitcoinTHE LEGENDhash rate (cont.) in late 2010 (4). instantaneous, but for automated brute-force attacks requiring billions of operations, the Before long, GPU miners were entirely dominating process would be prohibitively slow and the Bitcoin mining industry and many early miners computationally expensive. saw their CPU based miners becoming obsolete and unprofitable. It is this specific mining climate that With this in mind, it is not hard to imagine how a created the perfect conditions for Litecoin to launch scrypt mining implementation would be slower and flourish. to execute per hash than a non-memory intensive hash functions such as Bitcoin’s Towards the end of 2011, many miners were looking SHA-256. In addition, the scrypt memory for alternative ways to monetise their uneconomical requirements could initially only be effectively mining hardware. This led to the creation of the first performed by CPUs. Scrypt-mined altcoin, Tenebrix, by Lulcust, using a mining implementation written by none other than Continued… ———> ArtForz himself (5).

LITECOIN BACKGROUND

Tenebrix rapidly gained popularity by re-enabling CPU and June 2017. Towards the end of his tenure, Litecoin mining and tapping into a substantial pool of more or was listed on GDAX and is now traded there against less idle CPUs in the mining community. USD, EUR and BTC. Shortly thereafter however, users inspecting the Lee has a long-standing role as Litecoin lead developer source code discovered that the Tenebrix genesis block and has expressed his intention of working full-time in contained a coinbase reward of more than 7 million that capacity. coins, a full third of all Tenebrix ever to be issued. This The Litecoin reference client is called Litecoin Core and enormous pre-mine caused outrage in the community features all "full node" capabilities including complete and planning soon commenced for a new coin to be download and validation of the Litecoin blockchain, all forked off the Tenebrix codebase and released fairly in protocol rules and wallet functionality. Most worked the community. The new coin was to be called Fairbrix projects relate closely to similar projects in Bitcoin and and was spearheaded by Charlie Lee (username mainly involve safe and proper implementation. coblee) (6). The Litecoin Core website has recently been taken The problem was that Fairbrix was a fork of Tenebrix, offline, and with it, the full overview of the Litecoin itself a fork of Multicoin, itself a fork of Bitcoin, and in development team. However, before its removal it that chain of forks, bugs crept in, causing serious listed 14 team members as involved with the project. protocol issues. In addition to this, neither Tenebrix nor Fairbrix had any caps on issuance, permitting The Litecoin Foundation serves a political and infinite inflation and causing negative reactions in the industrial lobbying function organisationally separate community. Noticing however, the popularity of the from, but intellectually related to, Litecoin Core. It is a scrypt mining protocol among miners, Lee decided to non-profit organisation located in Singapore whose do a clean new fork from Bitcoin, pick a list of the stated mission is to "advance Litecoin for the good of most promising altcoin features known at the time, society by developing and promoting state-of-the-art and launch it in a fair manner to the community. blockchain technologies" (9). The properties chosen were: faster block confirmation On its board of directors, we find Charlie Lee, Xinxi times, capped issuance and scrypt mining. Wang, Zing Yang and Franklyn Richards. The foundation sponsors two full-time Litecoin developers Lee released the Litecoin source code on GitHub 7 and also supplies the core team with financial aid on a October 2011 (7). Two days later, he posted a thread on more general basis. the BitcoinTalk forum pre-announcing the launch and providing rudimentary Q&A (8). The exact launch time Generally, Litecoin software upgrades work on the was set to 13 October at 03:00 GMT by popular vote in same basis as Bitcoin. Changes can be proposed by order to ensure fairness and facilitate maximum anyone, but no user is obliged to install them. immediate participation by the mining community. Updates are added to the Litecoin Core client based on the meritocratic procedures of the Core development The launch proceeded without any major issues and team and all users choose to accept them or not. Like Litecoin went live with a genesis block that included Bitcoin updates, Litecoin client updates are mainly the text: "NY Times 05/Oct/2011 Steve Jobs, Apple’s implemented as soft forks and are therefore Visionary, Dies at 56”. backwards compatible. This safeguards the networks’ decentralisation and robustness by significantly reducing the fragmentation risks associated with hard TECH & ARCHITECTURE forks. In December 2017, Charlie Lee announced that he had Founders, Governance & Development completed the sale of all his personal Litecoins with Litecoin’s principal founder and figurehead, Charlie the exception of a small number of physical Lee, has a longstanding history of involvement in the collectibles. His statement went on to explain that he cryptocurrency industry. An alumnus of MIT and had taken this action in order to remain detached Google, Lee made his first post on the BitcoinTalk from the fluctuations of the Litecoin price while forum, as coblee, on 27 June 2011 and has remained continuing his work on protocol development. active ever since. While his announcement was interpreted in multiple He worked at exchange provider Coinbase first as ways we leave it up to investors to make up their own engineering manager between July 2013 and July 2015 mind with regards to the potential implications of his and then as director of engineering between July 2015 divestment on the development of Litecoin. and

TECH & ARCHITECTURE

Technology Let us then consider the opposite scenario: Exactly Like most altcoins, Litecoin was forked from the after a difficulty readjustment, the hash rate halves. Bitcoin source code with relatively minor modifications The network will now need four weeks in order to find to change a few key attributes. On a technical level, 2016 blocks, at which time the difficulty will be halved. Litecoin is therefore nearly identical to Bitcoin, Meanwhile, transactions are twice as slow as normal meaning that pretty much all software upgrades (and the coin supply, in turn, is growing at half its created for Bitcoin can be equally well implemented intended rate). into Litecoin. As we can observe, a doubling in hash rate causes The few actual differences between the two relate altered network behaviour for one week, whereas a mainly to block generation times, coin issuance and halving of hash rate causes altered network behaviour the mining algorithm. Litecoin block generation times for one month. Sudden additions of hash power are are targeted at 2.5 minutes instead of the 10-minute thus resolved quickly, whereas sudden removals are block generation target used by Bitcoin. The idea resolved only after significant periods of time. behind the modification was to allow for 4x faster confirmation times than Bitcoin. This becomes a serious problem for smaller coins with relatively low hash rates that are competing for hash Even though the block generation target is 4x that of power against larger coins with relatively large hash Bitcoin, the block reward remains the same, starting at rates. Because profit-driven miners will migrate LTC 50 per block. However, Litecoin block rewards are between the coins based on momentary profitability, cut in half every 840,000 blocks, as opposed to every there will always exist a state of flux between the 210,000 blocks in Bitcoin. As a result, the Litecoin combined hash pools of the coins. For the larger coin, inflation schedule plays out over the same length as this is not an issue as the hash rate variance is such a Bitcoin (~130 years), but the total number of Litecoins small percentage of its overall hash power. For the will be 4x that of Bitcoin: a total of LTC ~84MM. smaller coin on the other hand, it could be fatal. One of the main innovative ideas behind Litecoin was Say that their relative hash rates are 1:100. If 9% of the intention to make mining ASIC resistant to miners left the large coin momentarily in search of prevent mining centralisation. By employing a memory greater profits, it would represent a 10-fold increase in heavy mining algorithm, the founders were the small coin’s hash rate. This would cause the small attempting to make Litecoin ASICs uneconomical and coin network to generate blocks ten times as fast for therefore retain the possibility of mining on 1.4 days, the difficulty readjusts 10 times upwards. No undedicated hardware. big deal. The larger coin sees a 9% reduction in block The Scrypt mining algorithm also served a second frequency for 16 days. Also, no big deal. purpose of being intentionally incompatible with The ratio is now 10:91, and if the same miners migrate existing Bitcoin mining hardware, thereby ensuring a back to the larger coin, disaster strikes the small coin. state of non-competitiveness between the two coins 90% of its miners are now leaving. Transactions are in terms of already operational hash power. 90% slower to confirm and the network will not find A state of non-competitiveness with Bitcoin is 2016 blocks to readjust the difficulty downwards for essential for altcoins using the same difficulty approximately five months. Needless to say, an adjustment algorithm as Bitcoin. In Bitcoin, the effective network downtime on the order of five difficulty adjustment algorithm is block-based and months can severely debilitate a coin. therefore asymmetric in the time it takes for it to respond to increases and decreases in hashrate. Segregated Witness (SegWit) & Transaction Malleability Because of its close similarity to Bitcoin, Litecoin has In its steady state, Bitcoin will produce one block every traditionally been extremely quick to implement 10 minutes on average. The difficulty will readjust upgrades intended and written for the Bitcoin protocol, every 2016 blocks, which at that rate, is every two sometimes adopting them before Bitcoin itself. In a weeks. Imagine then for simplicity, that exactly after a sense, Litecoin can therefore be seen as a high-value difficulty readjustment, the hash rate doubles and real-life testnet for new and groundbreaking remains constant until the next readjustment. It will cryptocurrency technology, and while this does come now only take the network one week to find 2016 with a unique set of risks, it also provides the ability blocks, at which time the difficulty would double to for Litecoin to maintain a position at the bleeding edge accommodate the increase in hash rate. In the of cryptocurrency development. meantime, transactions are confirming twice as fast as normal (and incidentally, the coin supply is growing Already by spring 2017, as the first major coin, Litecoin at twice its intended rate). implemented the Segregated Witness (SegWit) transaction

TECH & ARCHITECTURE transaction structure. This update fixes the transaction malleability bug and thereby opens the door for a whole DEEP DIVE: SEGREGATED WITNESS range of exciting features relying on chained SegWit is the name commonly used when referring multisignature transactions. to the Segregated Witness transaction format change first proposed for the Bitcoin protocol as DEEP DIVE: TRANSACTION MALLEABILITY BIP141 in late 2015. Transaction malleability is a long-standing issue Its primary objective was to solve the transaction that has plagued Bitcoin-based coins since it was malleability issue (see corresponding Deep Dive) first reported on BitcoinTalk in 2011. thereby facilitating horizontal scaling efforts such The problem is caused by the ability of transaction as The Lighting Network and new functionality like signatures being encoded in different formats Atomic Swaps (also see corresponding section and -while still containing the same relevant Deep Dive). information- being accepted as valid by the network. SegWit solves the malleability issue by reorganising A malicious node could then take any transaction the transaction data structure. Whereas the legacy broadcast to the network, change the signature -or protocol includes the digital signatures (the witness witness data- format, and publish the alternative data) into the hash input for TXID calculation, but equally valid transaction to the network (it is SegWit treats it as a separate data structure, not important to note that the funds will still come from included in the calculation of the TXIDs. and move to the same addresses, so no money can Fig 1. Legacy Structure vs SegWit Structure be lost in the process). Legacy However, this causes a problem because the SignatureWitness data Data Transaction ID (TXID) used to reference transactions is a hash of the combined data contained in each SignatureWitness data Data transaction, and any minute change to its Inputs constituents will completely alter the TXID. Transaction Data Structure Any applications relying on referencing TXIDs that have not yet been included in the blockchain would be vulnerable to transaction malleability and could Hash SHA256 not be trusted to safely operate.

One of the most promising features enabled by SegWit Output (Contains Witness Data) TXID is The Lightning Network (see corresponding Deep Dive). First formally proposed by Thaddeus Dryja and Joseph Poon in 2015, the concept would allow for SegWit Bitcoin-based cryptocurrencies to scale horizontally -as Transaction Data opposed to the inferior vertical scaling offered by Inputs Witness data || increasing block sizes- by allowing trustless off-chain Structure cryptocurrency payments secured by their underlying protocols. The idea is to run all casual low-value transactions on a second layer network and settle Hash SHA256 balances using on-chain transactions. As one of the first protocols to adopt SegWit, Litecoin is supremely placed to benefit from early Lightning Output Witness data || TXID implementations. Moreover, due to its close compatibility with Bitcoin, Litecoin’s Lightning Network Source: Bitcoin.org will be fully interoperable with Bitcoin’s Lightning Network. By segregating the witness data, calculations of TXIDs are made independently of the signatures, Full interoperability allows for near-frictionless removing the possibility of altering TXIDs by movement of funds between the two blockchains, changing the signature formats of published without the need for a trusted third party. This enables transactions. Litecoin to act as an overflow channel whenever Bitcoin Continued… ———>

TECH & ARCHITECTURE is congested. In this manner, transactions with lower The Lightning Network economical value, requiring less security, can be done Enter the Lightning Network. Under this system, on the Litecoin blockchain instead, either on-chain or on transactions between counterparties are kept off the Litecoin’s Lightning Network. blockchain in payment channels. On a high level, these payment channels can be thought of as redeemable SEGREGATED WITNESS CONTINUED… obligations that either party can settle at any time on During its development, SegWit was further the blockchain, even without the trust or cooperation improved to facilitate larger on-chain transaction of your counterparty (11) (12). throughput as well as allow future signature Payment channels are essentially state channels, that upgrades (e.g. Schnorr) to be implemented without is virtual lines of communication through which breaking consensus rules and thus necessitating a information is being shared regarding a state. In this hard fork. case, the state refers to a set of cryptocurrency Under the SegWit structure, block size is replaced balances. These states can be updated as rapidly as by the new concept of block weight. In this manner, each party are able to create, sign and transmit SegWit transactions are able to exceed the 1mb transactions to each other over whatever network they block size limit while still operating within the are using. Using common internet infrastructure this legacy consensus rules. One could say that legacy means thousands of transactions per second for each nodes do not fully understand SegWit transactions, channel (12). but still consider them valid. Legacy nodes only see Channels can be unidirectional (e.g. for metered the block without the witness data, and therefore payments), bidirectional, or multidirectional. They can considers it to be smaller than the 1mb block size also be sent in a trustless manner via connecting even if, when including the witness, the block is intermediaries. In the latter instance, and as larger than 1mb. implemented in the Lightning Network, payments can This property is extremely important as it allows an travel much like routed Internet packets and reach any increase of transactional throughput without other user so long as there exists any possible route of breaking existing consensus rules which would risk open payment channels connecting the two users. For an unwanted network split upon implementation. example, if Alice has an open channel with Bob, Bob has one with Carol, and Carol has one with Dave, Alice As we've already described in our Bitcoin Asset can pay Dave by using Bob and Carol as payment Highlight, there exists an essential trade-off between routing intermediaries. on-chain transaction capacity and network To initiate a payment channel, two (or more) users decentralisation. If all transactions, no matter how send funds to a multisignature address. Both parties trivial were to be recorded in a public blockchain, the provide the other with the signatures needed to close system could not support a global number of casual out the channel and refund the initial balance, this users. For example, 7 billion users doing 2 Bitcoin way either party can exit the relationship without transactions per day would need approximately 24GB losses -other than on-chain transaction fees- in case blocks every 10 minutes in a steady state (10). That the other party becomes unresponsive or requires not only a stupendous amount of storage, but uncooperative. also an enviable Internet connection. Both would be extremely expensive and outside of the financial scope Any subsequent transaction is kept off-chain, with of nearly all users. Running a node would be infeasible. participants keeping track of the new states of the channel. Each new transaction is structured such that However, small casual transactions do not need strong it invalidates or precedes the previous one, thereby censorship resistance or trustless, decentralised retaining at all times the possibility of all participants validation. The economic necessity for censorship to close the channel and settle the most recent state resistance is often proportional to the size and onto the underlying blockchain. This prevents both importance of a transaction and there is little reason parties from cheating through closing a channel at a why one would need to store the transactions sent for previous state not reflecting the latest transactions. every single macchiato on a global distributed ledger. The solution is to use the global distributed blockchain In practice, this is achieved using Hashed Time Lock as an industrial-grade settlement ledger and do Contracts (HTLCs, see corresponding Deep Dive), a smaller, less economically important transactions on class of smart contracts running on Litecoin, Bitcoin or platforms using the immutable blockchains only to any other interoperable protocol. By chaining HTLCs settle the final balances. and decrementing the time lock between each channel

TECH & ARCHITECTURE

participant, intermediaries can participate in payment routing without trusting the other participants DEEP DIVE: HASHED TIME LOCK CONTRACTS because they can always pull funds from their A Hashed Time Lock Contract (HTLC) is a technique preceding counterparty with the same information as of conditional payment -a smart contract- in their subsequent counterparty must use to pull from cryptocurrencies utilising Bitcoin’s SCRIPT scripting them, before their preceding counterparty can get a language, that will execute upon the fulfilment of refund. Intermediaries can charge transaction fees as a one of two clauses, whichever one happens first. remuneration for providing their channel liquidity to the routed payment if they so choose. The first clause is the provision of an input (or proof) that will generate a hash specified in the Figure 2 shows a simplified routing structure between contract. The second clause is a time marker. Alice and Dave including simplified pseudo code for the HTLCs. For Alice to pay Dave 10,000 µLTC she first If the correct proof is provided before the time finds a suitable route of open, sufficiently funded marker is passed the transaction will execute, but if channels, in this case via Bob and Carol. She then the time marker is passed before such proof is contacts Dave and asks him to create a secret number provided, the transaction will refund. R and send her the hash Hash(R) of R. Their contract The cryptographic proof of payment received by the states that if Alice knows R, she has paid Dave. She payee can subsequently be used to trigger further can then make an HTLC with Bob such that if he can actions in chained payments, but only if there is no produce R, which generates H, within (for example) 18 risk of transaction malleability. blocks, she will pay him 10,002 µLTC, or else she gets a refund. Bob then makes an HTLC with Carol such that HTLCs are essential building blocks of both Atomic if she can produce R within 12 blocks, he will pay her Swaps and The Lightning Network. 10,001 µLTC, or else he gets a refund. Carol then makes an HTLC with Dave such that if he can produce No participant in the chain can have any knowledge of R within 6 blocks, she will pay him 10,000 µLTC, or else any other part of the payment chain than the links in she gets a refund. Dave of course knows R and can pull which they are themselves involved. This represents a the funds before Carol can claim a refund. Carol then major increase in transaction privacy over regular knows R and can pull her funds before Bob can claim a Litecoin (or Bitcoin) transactions, where all transaction refund. The same holds for Bob and his HTLC with information is published to all network participants. Alice. The 1 µLTC difference in payments represents a Only two on-chain transactions are needed for a nearly transaction fee to entice Bob and Carol to participate unlimited amount of Lightning transactions. One to in the payment routing. fund the channel, and one to close it. There is no hard lower limit on transaction sizes and fees can be Simplified Overview of a Routed Payment extremely low with no corresponding reduction in

fig. 2 from Alice to Dave on the Lightning Network security as the system security is effectively piggybacking on that of its parent protocol. HTLC B Atomic Swaps Bob Carol Lastly, we mention cross-chain Atomic Swaps, an R exciting cross-currency transaction technique that enables swapping different currencies without R R counterparty risk. Under the structure of the combined HTLC A HTLC C contracts there is no way for one party to receive any Sends Alice funds from the contract unless the other party also H = Hash(R) gains that same ability. The contracts are also Creates Alice Dave auditable by each party, ensuring that both have the Secret R necessary funds to complete the transaction. Indirect flow of 10,000 µLTC Atomic Swaps can be done either on- or off-chain. The on-chain version requires a total of four on-chain Alice & Dave: If Alice knows R, Alice has Paid Dave transactions, two on each chain, with settlement time HTLC A: IF R Send 10,002 µLTC, ELSE Refund in 18 Blocks and cost depending on the slowest and most HTLC B: IF R Send 10,001 µLTC, ELSE Refund in 12 Blocks expensive underlying chain, respectively. Off-chain HTLC C: IF R Send 10,000 µLTC, ELSE Refund in 6 Blocks swaps can be done via the Lightning Network with all Open Channel Source: CoinShares Research its benefits in terms of speed and cost.

UTILITY & GROWTH OPPORTUNITIES

Sound Money blockchain, a more suitable role for ‘protocol layer Litecoin, like Bitcoin owes much of its strength and transactions’ is settlement. If all parties to any utility to its independence of authority and censorship aggregation of payments, agree on the ﬁnal balance, resistance. Co-opting a decentralised cryptocurrency settlement on a permanent, immutable, indisputable against the wishes of its network participants is ledger represents a much more economically sound extremely expensive and nearly impossible to achieve alternative to storing every transaction, no matter how without alerting other stakeholders. The network is small, directly on-chain. relatively simple, but extremely robust. Solutions using the Litecoin network as an underlying Litecoin as a currency is impossible to debase without mechanism for clearing or settlement are referred to as the express consent of a majority of the network. A Layer 2 (L2) solutions. While there already exist system, not relying on any level of trust whatsoever centralised payments solutions available for merchants and whose only assumption is that every participant on seeking to accept litecoin payments, these still suffer average acts in their own perceived self-interest: the from the same legacy issues as trust-based payments, very foundation on which modern economic theory without being able to fully capitalise on the trustless already rests. decentralised properties of Litecoin.

Most Valuable Use Cases Store of Value At present, we hold that there are three main high- Litecoin is envisioned as the digital silver to Bitcoin’s level use cases dominating Litecoin utilisation which digital gold. As touched on in the Technology section, comprise its value. The three are, in no specific order of litecoin issuance is capped with an upper limit of LTC prevalence 1) medium of exchange, 2) store of value, 84MM and no more can ever exist, this is analogous to and 3) instrument of speculation. We will discuss its the finite supply of precious metals in the earth's crust. role as a store of value and instrument of speculation Emission is periodically constant against an increasing later in this section. money supply and halved approximately every four years. From its initial coinbase (the technical term, not Medium of Exchange the company) reward of LTC 50 per block, the block Out of the three main high-level use cases, specific reward has since been reduced to LTC 25 in 2015. subsets emerge. While this paper cannot cover them all Annual Litecoin inflation will still remain above 9% in detail, we will concentrate on two particularly until dropping to around 4% at the next halving promising ones emerging from its utility as a medium projected in 2019, and then less than 2% at the of exchange: payments and settlement. subsequent halving, around 2023 (Fig. 3). At some Payments is one of the more obvious applications for point, however, Litecoin will turn deflationary. Because borderless, permissionless value transfer protocols. it is possible to lose private keys or send litecoins to Money can be transmitted anywhere in the world unspendable addresses, litecoin issuance will where there is access to electricity and the Internet, eventually be outpaced by litecoin losses, ultimately with flat fees regardless of amount transferred. A reducing the spendable supply. Litecoin transaction will cost the same whether you are sending LTC 0.001 or LTC 10,000. Furthermore, Time Series Projection of Litecoin Block Reward (LTC) Versus Total Coins Mined Litecoin’s increased block frequency compared to fig. 3 Bitcoin lends itself better towards payments as transactions clear securely (6 confirmations) in an Block Reward # of Coins Mined average of 15 minutes as opposed to an hour for Bitcoin. 50 85MM However, as we have previously discussed, the pure 40 68MM utility of using the protocol layer for direct payments carries with it an essential trade-off between 30 51MM scalability and decentralisation, such that under current Total Coins Mined 20 34MM protocol rules and network architecture, "on-chain" payments at global scales are not feasible. 10 17MM This limitation takes us straight into the realm of the settlements use case via the Lightning Network. LTC Block Reward 0 0MM

Because it makes little to no economic sense to enter 2011 2015 2019 2023 2027 2031 2035 2039 2043 2047 2051 2055 2059 2062 2067 every single transaction into a global distributed Source: CoinShares Research blockchain

SPECULATIVE VALUE & RELATIONSHIPS TO WATCH

In this section we have mapped some possible drivers technologies. As systems develop, each addition or of growth in the utility value of the underlying Litecoin reduction of value to the codebase should elicit organic network. These are nonetheless single components in responses in the volume and momentum of funding the aggregate price and thus affects network value in flows between coins as investors re-weight their a non-exhaustive manner. The section bears close holdings based on their belief in the viability of the resemblance to its sister sections in our Bitcoin and technologies. Ether Asset Highlights since many of the relationships highlighted are equally interesting for most Transaction Volume cryptocurrencies. Speculative value in litecoin is part-driven by future Speculation plays a substantial role in driving the expectation of utility, weighted (or inflated) by current litecoin price and this speculation is influenced heavily level of hype. One indicator many digital asset by the performance of other cryptocurrencies and the speculators watch as a relational indicator of both market as a whole. There are many other decentralised price and network value is the development of daily tokens with which litecoin competes on both technical on-chain transaction volume as a proxy for adoption and speculative fronts and their relative performance and growth in usage. We observe a very strong over time has an impact on speculative belief. One correlation between daily on-chain litecoin transaction trend to watch when evaluating performance is the volume and network value (Fig. 5). overall dominance (share of the decentralised token market’s outstanding value) of litecoin among its Network Value Versus Daily Litecoin On-Chain closest competitors.

ﬁg. 5 Transaction Volume (# of Transactions) Dominance US$100,000 MM 1,000,000 We measure dominance among crypto assets as the Network Value (US$m) # of Txs percentage of cumulative network value (modelled on US$10,000 MM 100,000 conventional market capitalisation). Since its ﬁrst US$1,000 MM publicly-priced trades, litecoin has seen its unit value rise from a few cents to a peak of more than $400. US$100 MM 10,000

Even in the face of widespread new competition, US$10 MM litecoin has steadily remained among the top 5 crypto 1,000 Correlation: US$1 MM assets (Fig. 4) 0.88 But more than merely measuring each currency's US$0 MM 100 Jul-12 Jul-13 relative valuation/standing, the long-term dynamics Jan-13 Jan-14 Jun-14Dec-14Sep-15Mar-16Sep-16Mar-17Sep-17Feb-18Aug-18 of the dominance curve can illuminate trends in Sources: bitinfocharts.com, CoinShares Research funding patterns between competing protocol technologies Exchange Volume Cryptocurrency Dominance as Percentage of We also observe a strong correlation between exchange traded volume (US$) and Litecoin network ﬁg. 4 Combined Market Cap Since Bitcoin Launch value (Fig. 6, next page). However, because exchange Bitcoin Ethereum Ripple Dash volume ($) and network value ($) both contain the Monero Bitcoin Cash Litecoin litecoin price as components of their calculation, this may create an inﬂated sense of covariance between 100% the two. 90% To standardise the relationship, one can look at litecoin-denominated exchange traded volumes. These 80% have grown since inception, an impressive statistic 70% given the meteoric rise of the litecoin price. This relationship does, however, correlate much less 60% strongly than dollar denominated volumes versus network value (Fig. 7, next page). 50% Although trade volumes are valuable data points when 40% analysing bitcoin price trends, there are some

Jul-10 Jul-17 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Feb-18Aug-18 attributes of various crypto-exchanges that should be noted with caution when looking at available data. Sources: bitinfocharts.com, CoinShares Research

SPECULATIVE VALUE & RELATIONSHIPS TO WATCH

There has been, and to a certain degree remains, a tendency for upstart exchanges to offer zero, or GOOGLE SEARCH TRENDS FOR LITECOIN TERMS token-subsidised trading fees in order to attract ﬁg. 8 traders. While this is the complete prerogative of each individual exchange, one consequence of zero-fee Buy Litecoin: [Intent Driven] Litecoin Price: [Descriptive] trading is that volumes may appear stronger than Litecoin: [General] Invest in Litecoin: [Descr. & Intent] what could be reasonably expected at more 25 established exchanges where fees are levied. Our exchange volumes do not include exchanges with 20 zero or token-subsidised fee structures. 15 NETWORK VALUE VS. US$ EXCHANGE VOLUME ﬁg. 6 10

US$100,000 MM Correlation: US$10,000 MM 5 0.77 US$10,000 MM US$1,000 MM 0 Network Value (US$) Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Exchange Volume (US$) US$1,000 MM US$100 MM Source: Google Search Trends Exchange Volume

US$100 MM US$10 MM corresponding media coverage. Overall this suggests a market that has thus far been reactive to cyclical

US$10 MM US$1 MM speculation on future utility value. It is worth noting that these volumes are indexed Network Value US$1 MM US$0 MM against the top values and therefore look very Dec-13 Jun-14 Dec-14May-15Nov-15May-16Oct-16 Apr-17 Oct-17 Apr-18Sep-18 subdued in comparison to the peak-hype volumes. We Sources: Coinmarketcap.com, bitinfocharts.com, CoinShares Research have therefore cut the axis at 25% of the peaks to better show the long term trends.

NETWORK VALUE VS. LTC EXCHANGE VOLUME Even though the baseline search volumes are

ﬁg. 7 somewhat drowned out by the sheer magnitude of the spikes, they do reveal a slow but steady increase in long-term search interest. Current general litecoin US$100,000 MM Correlation: 1,000 MM LTC 0.36 interest is roughly a quarter that of the same time last

US$10,000 MM 100 MM LTC year, but more than three times that of two years ago. Network Value (US$) Exchange Volume (LTC) US$1,000 MM 10 MM LTC

Exchange Volume ASSET PERFORMANCE US$100 MM 1 MM LTC & CORRELATIONS

US$10 MM 0 MM LTC As is the case with many crypto assets, measuring pure Network Value US$1 MM 0 MM LTC asset returns over the entire lifetime of litecoin will

Dec-13 Jun-14 Dec-14May-15Nov-15May-16Oct-16 Apr-17 Oct-17 Apr-18Sep-18 return ﬁgures that verge on the absurd. Litecoin, like bitcoin, was not pre-mined and started its life priced at Sources: Coinmarketcap.com, bitinfocharts.com, CoinShares Research US$ 0 (even though its cost of creation has always been higher than US$ 0). Therefore, its return to date is Search Trends technically inﬁnity, which does not make for good Five-year Litecoin search trends reveal strongly hype- comparisons. If we instead begin in 2012, when decent driven cyclical interest spikes of increasing magnitude price signals for litecoin had been established, we can (Fig. 8). Temporally, the peaks are narrow and correlate begin to look at returns in numbers that are at least closely with historical spikes in litecoin price and the closer to the orders of magnitude we are used to. corresponding

SPECULATIVE VALUE & RELATIONSHIPS TO WATCH

Table No.1 2012 2013 2014 2015 2016 2017 2018 (YTD) Returns 117% 33539% -89% 30% 25% 5049% -71% Volatility 35% 147% 85% 88% 36% 112% 78% Sources: bitinfocharts.com, CoinShares Research Investment Case of US$ 10,000 As a relative comparison it can be helpful to index a What we see is that litecoin was the worst potential set of portfolio components to see how performing investment until mid-2017, at which point they perform in relation to each other. In this case, it raced past every single other asset, twice the index would start each asset with a US$ 10,000 surpassing $100,000 before correecting through investment at the end of 2014. For comparison - much of 2018. As of the last data point (02 we’ve chosen a basket of commonly invested assets September 2018), that US$ 10,000 investment, if (S&P 500, Nasdaq Composite, Gold and Brent), made at the end of 2014 would be worth versus the performance of litecoin. approximately US$ 28,000.

DEVELOPMENT OF US$ 10,000 INVESTED IN COMMON INVESTABLE ASSETS 2014 TO 2018 (YTD) ﬁg. 9

US$1,000,000 Litecoin S&P 500 Nasdaq Litecoin US$27,941 Gold Brent US$100,000 S&P 500 US$15,698

US$10,000 Nasdaq US$19,417

US$1,000 Gold US$9,983

$6,998 US$100 Brent

Jan-14 Jun-14 Dec-14 May-15Nov-15May-16 Oct-16 Apr-17 Sep-17 Mar-18Sep-18 Sources: bitinfocharts.com, FRED, US Treasury, CoinShares Research Volatility However, in order to access returns on these levels, yet again caused large fluctuations in prices (Fig. 10). litecoin investors must withstand severe volatility. While we suspect volatility might dampen over time as the price reaches maturity, litecoin still behaves Looking at historical annualised figures for litecoin, like a growth asset requiring substantial risk we observe that the multi-year trend of falling tolerance on the part of investors. volatility was broken last year as hefty price action yet LITECOIN VOLATILITY 2012 - 2018 (YEAR-TO-DATE) ( 30-DAY ROLLING ANNUALISED STANDARD DEVIATION OF DAILY RETURNS ) fig. 10 500% 400% 300% 200% 100% 0%

Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Jan-18 May-18 Sep-18 Sources: bitinfocharts.com, CoinShares Research

ASSET PERFORMANCE & CORRELATIONS

Risk-Adjusted Returns Neither pure returns nor volatility alone sufﬁce as free rate are then divided by the price volatility of the metrics for prudent portfolio allocation. Because asset, represented by the standard deviation of the assets are inherently different and incorporate unique excess returns. Assets with the highest Sharpe Ratio risks, returns and volatilities, one must also look to offer the best compensation to investors for the level risk-adjusted measures in order to achieve a valuable of risk they are taking. comparison. Litecoin is an extremely volatile investment asset. Sharpe Ratios offer one method of comparing returns Even so, when applying the Sharpe Ratio to litecoin on the basis of standardised volatility measures. and a basket of commonly investable assets, litecoin First, pure returns are discounted by a risk-free scores moderately well against stock indexes like the investment rate, represented by 3-month U.S. Nasdaq and S&P 500 while consistently beating Treasury bills. Average excess returns above the risk- commodities like gold and oil (Fig. 11).

(8-2YR) SHARPE RATIOS - MONTHLY RETURNS (VS. 3-M US TREASURY BILL) OF COMMON ASSETS ﬁg. 11

1.00 0.75 0.50 0.25 0.00 -0.25 Year Interval 8 7 6 5 4 3 2 8 7 6 5 4 3 2 8 7 6 5 4 3 2 8 7 6 5 4 3 2 8 7 6 5 4 3 2 8 7 6 5 4 3 2 Litecoin Bitcoin S&P 500 Nasdaq Gold Brent

Sources: bitinfocharts.com, FRED, US Treasury, CoinShares Research Returns Compared to Common Assets One of the most exciting attributes of the crypto-markets has made high-risk/ high-return cryptocurrency space is highlighted in Table No. 1 assets accessible to a much wider public. The 3- (Page 12): Whereas assets with similar returns (and month returns in Table No. 2 makes the risk/reward risks) have largely been unavailable to anyone outside relationship of the crypto-space compared with more the venture capital industry, the open nature of ‘traditional’ assets abundantly clear.

Table No.2 Litecoin Bitcoin S&P 500 Nasdaq Gold Brent Q3 2016 -9% -9% 3% 9% -1% 1% Q4 2016 14% 59% 3% 1% -13% 14% Q1 2017 62% 12% 6% 10% 9% -5% Q2 2017 443% 126% 3% 4% 0% -10% Q3 2017 41% 77% 4% 6% 3% 21% Q4 2017 315% 213% 6% 6% 1% 17% Q1 2018 -49% -50% -1% 2% 3% 3% Q2 2018 -30% -6% 3% 6% -6% 12%

Sources: bitinfocharts.com, FRED, CoinShares Research

ASSET PERFORMANCE & CORRELATIONS

Correlations of Returns per Asset

Extending the discussion on comparative returns, components move in unison there is an increased Table No. 3 (below) shows the 2-year correlations propensity for the entire portfolio value to follow the between the daily returns of litecoin (since 2015) movement of single assets and greatly diminishing against the same set of assets as in Table No. 2 diversification benefits. above, using Pearson's Correlation Coefficient. The daily returns correlation between litecoin and The inclusion of uncorrelated assets into a diversified traditional investment metrics such as the S&P 500, asset portfolio generally serves to lower its overall Nasdaq, Brent Crude and Investment Gold indexes is volatility. Thus, large movements in single assets only nearly zero. This property makes litecoin uniquely affect the overall portfolio value in a dampened interesting as a portfolio-balancing tool for investors manner as the probability of all assets moving seeking diversified exposure to multiple assets. together is low. Conversely, if all portfolio

Table Litecoin Bitcoin S&P 500 Nasdaq Gold Brent No.3 Litecoin 0.61 -0.0034 -0.020 0.033 0.0021

Bitcoin 0.61 -0.027 -0.038 0.055 0.004

S&P 500 -0.0034 -0.027 0.94 -0.091 0.25

Nasdaq -0.020 -0.038 0.94 -0.081 0.17

Gold 0.033 0.055 -0.091 -0.081 0.0018

2-Year Correlations of Daily Returns Brent 0.0021 0.004 0.25 0.17 0.0018Sources: bitinfocharts.com, FRED

Sources: bitinfocharts.com, FRED, CoinShares Research RISKS

Major risks to Litecoin can be roughly classified into protocol changes going unresolved for extended periods three general categories: Technological risk, and of time, potentially even leading to political chain splits. attack/regulatory vulnerability, with certain cases of Block Reward Tapering overlap. Here we will outline the most pressing risks, as we see them, with the express caveat that we Mining rewards have two current constituents: the cannot possibly cover every conceivable one. block reward and the transaction fees. Sometime around the year 2140, the block reward will round to Key Personnel Risk zero, ending the fresh issuance of litecoins. However, Litecoin, like Ethereum, has a well-recognised leader because of the shape of the issuance curve (see Fig. 3), and figurehead whose persona acts as the ultimate approximately two thirds of all litecoins have already decision authority in matters relating to vision and been issued, and before 2040, this figure is expected to development. Litecoin is therefore vulnerable to the be 99%. wellbeing, continued motivation and productivity of its At current litecoin prices the cumulative annual block founder and leader, Charlie Lee. If any detrimental reward is worth almost US$150MM. The total value of event or series of developments should befall Mr. Lee, the block reward plus transaction fees is what makes there are significant risks of disruption to both the an attack on block consensus prohibitively costly, development team and the Litecoin Foundation. preventing certain malicious behaviours in the Such disruption can range from power vacuums and consensus layer. For these types of attacks to remain infighting as current stakeholders vie for power over unreasonably expensive to execute, either total the future of the protocol to simple disagreements on transaction fees must grow to replace the block reward, protocol

RISKS or the litecoin price must rise in an inversely If every single transaction of a payments network on proportional manner to the block reward, or the more the scale of Visa (on the order of 5,000 per second (16)) likely scenario, there must be a combination of both. were to be recorded in the blockchain, it would grow by For a dependable fee market to develop, there must more than a hundred gigabytes per day (13), making it be a balance between transaction throughput and unrealistically expensive for most people to run a node. transaction fees. Economists will swiftly point out The second reason is slightly more complex and results that equilibrium will arise between transaction costs from bandwidth limitations: In our Ethereum Asset and transaction throughput, determined by Highlight we briefly touched on the concept of stale or transaction supply and transaction demand. orphaned blocks. A stale block is a valid block found by But for a price to exist the quantity of a good cannot a miner that reaches the network too late because be unlimited, and so there must at all times exist another miner has successfully propagated a different some restriction on the availability of block space valid block to the network. Unlike the Ethereum (this, in return, causes other potential issues which protocol which rewards stale blocks as Uncles, stale we will cover further in the next section). blocks in Litecoin are simply disregarded by the other nodes and the cost borne by the orphaned miner. Finding the correct balance between restricting block space and allowing sufficient throughput to cover If we assume an average Litecoin transaction size of demand is not a trivial matter and no commonly 500 bytes and a peak transaction demand of 5,000 per accepted solution has yet been offered. Unless a second, each 2.5-minute block would need to contain reliable stream of transaction fees can be expected to approximately 125 megabytes of data (13) (15). incentivise mining, Litecoin’s consensus security Acknowledging that not all locations currently have model risks collapsing with potentially devastating access to high-speed Internet connections, consequences for investors. transmitting such a large block reliably to the entire network could take several minutes. Scaling Cryptocurrency scaling is a highly complex problem This would greatly increase the chances that another that cannot be sufficiently covered in the scope of miner finds a valid block and successfully propagates this paper. We will endeavour to give a surface-level it, before your own block is sufficiently propagated, overview of the problems that has received the most risking that it becomes stale. Such an effect has a publicity but would like to stress that the matter is particularly centralising pressure on mining as co- much more complicated than it first appears. For a located miners would benefit greatly from reduced more thorough treatment of Bitcoin scaling (which transmission times between each other. applies equally to Litecoin) we can refer you to the Additionally, as we mention in the previous section, Bitcoin Wiki (13) and the Bitcoin Core Capacity the supply of a good must be limited for a price to Increase FAQ (14), and we recommend a detailed exist. This creates a friction between increasing block investigation of their listed sources. space for scaling purposes and limiting it for the sake Under the current protocol, Litecoin transactions are of securing sufficient fees to cover future mining limited to approximately 28 per second (13) (15), rewards. The balance between the two is perhaps one depending on the size and type of the transactions. of the most hotly debated topics in the Litecoin and Litecoin, like Bitcoin has a blocksize limit of 1 Bitcoin communities and one that largely remains megabyte, assigned as a spam-reduction measure to unsolved from a community consensus standpoint. reduce blockchain bloat, but due to the increased It is important to realise that scaling Litecoin by block frequency, Litecoin can handle four times the multiple orders of magnitude is not impossible; it just transaction load of Bitcoin. simply cannot be done under the current protocol As we keep repeating, there exists an essential trade- structure. However, the immaturity of the current off between on-chain transaction capacity and software and the need for significant upgrades to the decentralisation. There are two reasons for this, but protocol in order for Litecoin to compete as a value both relate to the cost of operating Litecoin nodes, transfer network on a global scale represents a notable affecting the number of network participants who risk to investors. could afford running a full node. Harmful Legal or Regulatory Action The first reason is cost of storage and validation: All Although Litecoin, like any other distributed network, full Litecoin nodes must validate all transactions and cannot effectively be shut down without finding and keep a full copy of the blockchain in order to verify disabling almost every single network participant, it is transaction history back to the genesis block. still vulnerable to damage dealt to it by powerful state

RISKS actors. Damage of this kind cannot realistically kill Hostile State-Level Adversaries the network, but it can certainly inflict severe State-Level actors could choose to covertly attempt monetary loss on network participants and deal to harm the Litecoin network. It is not difficult to powerful blows to adoption and use. imagine how branches of government stakeholders in While, for example, outlawing the software is entirely the current financial system could come to view unenforceable, it would almost certainly drive many cryptocurrency as a threat and choose to take participants off the network for fear of government aggressive action. repercussions, causing negative price pressures. Such an effort, especially one not overtly giving away Overly burdensome regulation can have much of the their hostile intent, is likely to be directed at the same effect. community itself. Because Litecoin’s architecture is With the notable exception of a handful of robust in the face of outside attacks, the most undemocratic countries, state-level responses to effective assaults might have to come from within. A most cryptocurrencies have thus far been measured classical method for such a strategy is to foment and reasonable. Most governments have chosen to internal hostility within the community, creating observe its growth and development, more or less factions, which will expend considerable time and leaving it alone so as to not stifle innovation. This is a energy on infighting while leaving the overall network very reasonable response to an ecosystem, whose fragmented and more vulnerable to separate harm. total network value has until recently been lower Attacks like these constitute a substantial risk to than most Fortune 500 companies, however, we investors as the potential success of attacks could cannot assume this cautious approach will continue cause meaningful damage to confidence in as the total network value of cryptocurrencies begins cryptocurrencies, conceivably resulting in negative to approach the M1 value of major world currencies. price pressures as investors leave the network.

Running a Full Node is Costly and Technically Additional Risks Challenging for Most Users This discussion simply presents the larger risks to the Unlike mining nodes, regular full nodes are not future utility of the network as we currently see directly compensated for their services by the them. It is not meant to be exhaustive and should network. Running a full node is in the self-interest of not be considered as such. As with any investment litecoin holders as it is the only way users can be opportunity it is important to perform proper certain that none of the protocol rules have been diligence and know the risks of the market you are broken by other participants without relying on investing in, prior to investment. someone else's trusted information. However, operating a node comes with a very real cost and normally requires separately dedicated hardware on the part of the user. Although there is specialised lower-cost hardware coming to market it is still expensive enough that only a subset of all users can be reasonably expected to have a separate computer running Litecoin Core. There are less hardware intensive ways of running a full node, but these solutions, while not immensely technically challenging, are still sufﬁciently difﬁcult to put off most casual users.

Competition & Technological Obsolescence Since the ﬁrst altcoins began emerging a few years after Bitcoin's invention there has been a Cambrian explosion of new coins and tokens in the cryptocurrency space. Altcoins now number in the thousands, and with the rapid proliferation of ERC-20 tokens, this trend has only accelerated. There is a chance that a newer alternative coin could outcompete Litecoin.

CITATIONS

1. Wikipedia. scrypt. [Online] 18 January 2018. [Cited: 4 February 2018.] https://en.wikipedia.org/wiki/Scrypt.

2. Wikipedia. Space-time tradeoff. [Online] 20 December 2017. [Cited: 5 February 2018.] https:// en.wikipedia.org/wiki/Space–time_tradeoff.

3. Popper, Nathaniel. Digital Gold: Bitcoin and the Inside Story of the Misﬁts and Millionaires Trying to Reinvent Money. New York : HarperCollins, 2015. 978-0-06-236249-0.

4. Theymos. BitcoinTalk. BitcoinTalk/Bitcoin Forum/Bitcoin/Development & Technical Discussion. [Online] 3 October 2010. [Cited: 5 February 2018.] https://bitcointalk.org/index.php?topic=1327.0.

5. Lolcust. BitcoinTalk. BitcoinTalk/Bitcoin Forum/Alternate cryptocurrencies/Announcements (Altcoins). [Online] 26 September 2011. [Cited: 5 February 2018.] https://bitcointalk.org/index.php?topic=45667.0.

6. Coblee. BitcoinTalk. BitcoinTalk/Bitcoin Forum/Alternate cryptocurrencies/Altcoin Discussion. [Online] 2 October 2011. [Cited: 7 February 2018.] https://bitcointalk.org/index.php?topic=46528.0.

7. GitHub. GitHub/litecoin-project/litecoin. [Online] 7 October 2011. [Cited: 6 February 2018.] https://github.com/ litecoin-project/litecoin.

8. Coblee. BitcoinTalk. BitcoinTalk/Bitcoin Forum/Alternate cryptocurrencies/Announcements (Altcoins). [Online] 9 October 2011. [Cited: 3 February 2018.] https://bitcointalk.org/index.php?topic=47417.0.

9. Litecoin Foundation. About Us. [Online] [Cited: 15 February 2018.] https://litecoin-foundation.org/about-us/.

10. YouTube. SF Bitcoin Devs Seminar: Scaling Bitcoin to Billions of Transactions Per Day. [Online] 5 March 2015. [Cited: 3 February 2018.] https://youtu.be/8zVzw912wPo.

11. Poon, Joseph and Dryja, Thaddeus. Lightning Network - Scalable, Instant Bitcoin/Blockchain Transactions. [Online] 14 January 2016. [Cited: 12 February 2018.] lightning.network.

12. Antonopolous, Andreas M. Mastering Bitcoin. Sebastopol : O'Reilly Media, 2017. 978-1-491-95438-6.

13. Bitcoin Wiki. Scalability. [Online] 12 May 2017. [Cited: 12 February 2018.] https://en.bitcoin.it/wiki/Scalability.

14. Bitcoin Core. Bitcoin Capacity Increases FAQ. [Online] 23 December 2015. [Cited: 22 February 2018.] https:// bitcoincore.org/en/2015/12/23/capacity-increases-faq/.

15. Litecoin Wiki. Litecoin. [Online] 18 February 2018. [Cited: 21 February 2018.] https://litecoin.info/index.php/ Litecoin.

16. Visa Inc. at a Glance. Visa. [Online] [Cited: 26 February 2018.] https://usa.visa.com/dam/VCOM/download/ corporate/media/visa-fact-sheet-Jun2015.pdf.

GLOSSARY

Cryptocurrency A cryptographically secured, decentralized, digital bearer asset

Litecoin Upper case Litecoin refers to the telecommunications protocol and network

litecoin Lower case litecoin refers to the native currency running on the Litecoin protocol

A set of instructions dictating a common structure of communication between separate Protocol parties

A web of interconnected nodes communicating with each other using the same compatible Network protocol

Nodes The single unit components of a network

Blockchain One of the central data structures in Litecoin, containing all blocks ever mined

Modular data structures containing valid Litecoin transactions, a reference to the previous Blocks block, and a proof-of-work A solution to a computationally expensive task, probabilistically proving that the presenter of Proof-of-work the proof has expended computational effort in creating it

Nodes tasked, through competitive computational work, with compiling Litecoin transactions Miners LEGAL into blocks and time stamping these onto the blockchain Mining refers to the competitive task of expending computational work in order to win the Mining privilege of time stamping blocks onto the blockchain (which is rewarded by the coinbase transaction) and the act of adding a new valid block to the blockchain

The ﬁrst transaction in a block where the block miner can create new litecoins from nothing Coinbase and send them to themselves as a reward for mining the block B a c k w a r d s A change in software that allows interoperability with the previous version of the software Compatibility

Soft Fork A change in software that is backwards compatible

Hard Fork A change in software that is not backwards compatible

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This document does not contain, or purport to be, ﬁnancial promotion(s) of any kind. This document does not contain reference to any of the investment products or services offered by members of the CoinShares Group.

Digital assets and related technologies can be extremely complicated. Crypto-currencies can be extremely volatile and subject to rapid ﬂuctuations in price, positively or negatively. Crypto-currencies are loosely regulated and there is no central marketplace for currency exchange. Supply is determined by a computer code, not by a central bank, and prices can be extremely volatile. The digital sector has spawned concepts and nomenclature much of which is novel and can be difﬁcult for even technically savvy individuals to thoroughly comprehend. The sector also evolves rapidly.

With increasing media attention on digital assets and related technologies, many of the concepts associated therewith (and the terms used to encapsulate them) are more likely to be encountered outside of the digital space. Although a term may become relatively well-known and in a relatively short timeframe, there is a danger that misunderstandings and misconceptions can take root relating to precisely what the concept behind the given term is.

The purpose of this document is to provide objective, educational and interesting commentary and analysis in connection with litecoin markets and Litecoin protocol developments. This document is not directed at any particular person or group of persons. This material is solely for informational purposes and shall not constitute an offer to sell or the solicitation to buy securities. Although produced with reasonable care and skill, no representation should be taken as having been given that this document is an exhaustive analysis of all of the considerations which its subject-matter may give rise to. This document fairly represents the opinions and sentiments of CoinShares (UK) Limited (“CSUKL”), which is the issuer of this document, as at the date of its issuance but it should be noted that such opinions and sentiments may be revised from time to time, for example in light of experience and further developments, and this document may not necessarily be updated to reﬂect the same.

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